The sure path to economic prosperity

What is the best course for strengthening Oklahoma’s economy and providing broad-based benefits for Oklahoma families?

Proponents of cutting or eliminating the state’s personal income tax claim that doing so will boost the state’s economy. However, as University of Oklahoma economist Dr. Cynthia Rogers explained at our recent economists’ forum, economic research is highly inconclusive about the relationship between state taxes and economic performance. While the extent to which tax changes cause growth is not clear, the research clearly establishes that tax cuts that are funded by reducing spending on productive public goods such as infrastructure and education leads to economic decline.

While there is no clear connection between low taxes and economic success, there is a clear and strong correlation between the educational attainment of a state’s population and its economic well-being.  The chart below, created by the Massachusetts Budget Project based on 2009 Current Population Survey data,  plots all fifty states based on the percent of its workforce with a bachelor’s degree and the medium hourly wage worker of its workers. Medium hourly wage, which is the middle wage of all wages paid to workers, is one of the best measures of a state’s economic well-being because it ignores the effects of extremely high wages of a few workers and provides a fair picture of what a middle-class employee earns.

The chart shows a statistical correlation of 0.80 between educational attainment and median wages, an exceptionally high correspondence for state-level economic data. With few exceptions, the states where workers earn most on average are the states with the most college graduates, while states with the lowest median wages are those with the fewest college graduates (notable outliers include Wyoming and Alaska, mining-rich states where more good-paying jobs are available for those without a college degree).  Despite our state’s recent economic successes, Oklahoma’s median hourly wage lags behind the national average. Oklahoma’s median wage in 2010 was $14.73 per hour, which was $1.27 per hour below the national medium wage and lower than all but ten other states (Current Population Survey data analyzed by Economic Policy Institute). At 22.7 percent, we rank 42nd in the percentage of the population with a college degree.

Oklahoma is pursuing various initiatives to increase its college graduation rate. Beginning in the late 1990’s, the Oklahoma State Regents for Higher Education pursued the Brain Gain 2010 initiative which included the key objective of increasing the number of Oklahomans who earn a college degree.  The Oklahoma Promise scholarship program provides free tuition to qualified Oklahoma students pursuing post-secondary education and the state’s 529 College Savings program provides tax incentives that encourage families to save for college.  This past fall, Governor Mary Fallin announced Oklahoma’s participation in the national Complete College America (CCA) initiative, with the goal of increasing the number of college degrees awarded annually by 67 percent by 2023. CCA involves numerous components:

Planned projects for the initiative include a statewide redesign of remedial and developmental education; a plan to reduce remediation demands in the transition from high school to college; continued development of Reach Higher, Oklahoma’s adult degree completion program; enhanced efforts to audit and bring in line with the national norm all certificates awarded through the Cooperative Alliance program with the Oklahoma Department of Career and Technology Education; and review and revise the Brain Gain Performance Funding program.

The state’s commitment to producing more college graduates in order to promote Oklahoma’s prosperity is well-advised.  Yet this emphasis seems fundamentally at odds with repeated rounds of budget cuts for higher education, which has seen state appropriations decline by $94 million, or 9.1 percent, over the past three years. And if we choose to make our priority immediate and ongoing tax cuts that will continue to shrink state spending, then our chances of having more Oklahomans complete college and land good-paying jobs are certain to shrink, as well.